[OPE] The G8 and price inflation - reading between the lines

From: Jurriaan Bendien (adsl675281@tiscali.nl)
Date: Sat Jul 12 2008 - 15:11:13 EDT

As I said before, the economists cannot agree anymore about the causes of inflation, which has become a politically highly charged issue:

"Any hope that the G8 meeting would result in coordinated monetary action--or concerted intervention in foreign exchange markets--to counter rises, principally in commodity prices, was dispelled by their failure to agree on the phenomenon's underlying causes." http://www.forbes.com/home/2008/06/17/g8-inflation-global-biz-cx_0618oxford.html

Haha. Notwithstanding centuries of economic science, they cannot agree! Obviously, the real reason is differing political interests, and not scientific truth. So what do you do as a politician? You call for "some more research".

"Elevated commodity prices, especially of oil and food, pose a serious challenge to stable growth worldwide, have serious implications for the most vulnerable, and may increase global inflationary pressure. These conditions make our policy choices more complicated," the G8 powers said in their communique. They called for an investigation involving the International Monetary Fund and International Energy Agency into the role of speculators in high oil prices, which are up more than 450% since their lows of under $11 per barrel in the 1990s. http://g8live.org/2008/06/23/g8-ministers-urge-oil-price-inquiry-as-inflation-mounts/

The IMF and the IEA are of course stacked with pro-US staff. Obviously you cannot have a coordinated policies, if your political interests are different...

"Europe and Japan have been complaining about the devaluation of the U.S. dollar, but there is no sign yet that the U.S. side will take any substantial action, although U.S. Treasury Secretary Henry Paulson had said that a stronger dollar is in the interests of the United States.   Analysts say it is difficult for G8 members to adopt a coordinated currency policy as they face different economic cycles and inflationary pressures."  http://news.xinhuanet.com/english/2008-07/06/content_8503402.htm

... but there is growing pressure to put the blame where it belongs:

Although the U.S. remains passive on the subject of regulations due to its many pension funds - considered the supply source of speculative money - it cannot continue with its current egocentric approach. http://www.hokkaido-np.co.jp/cont/g8summit_editorial/33036.html

However, the US is playing poker, and hedging its bets...

"Though there is still plenty of important US data to be released in July, the greenback has already proven it can take bad data and still make gains, as long as its major rivals are stuck in a similar predicament." http://www.forexyard.com/en/market-analysis/archive/2008-07-07

...but facing increasing antipathy from the rest of the world:

Against this backdrop, the United States is increasingly finding itself having to defend its economic policy to foreign leaders who are battling inflation. http://www.independent-bangladesh.com/200807057131/business/g8-to-tackle-inflation-but-concrete-action-elusive.html

But if you have faith in the markets to sort it out, price inflation can be seen as a "blunt instrument", and the problem may go away later:

"Concerns about inflation may dwindle toward the end of this year or early next year as recent record-breaking oil prices have battered consumers and businesses and will slow oil demand from emerging economies and others," said Lehman Brothers economist Hiroshi Shiraishi, adding he is more worried about a global slowdown." http://search.japantimes.co.jp/cgi-bin/nn20080710a5.html (Many analysts share the belief that Lehman, as well as its rivals on Wall Street, face months if not years of more limited profitability as the industry recovers from the credit crisis.) http://www.forbes.com/business/2008/07/10/lehman-banking-rumors-biz-wall-cx_lm_0710lehman.html

For the rest, it is a question of affirming that there is light at the end of the tunnel:

"Overall, the summit's main goal will be demonstrating confidence that they can "work through the oil crisis without causing the global economy to melt down," said Tom Cooley, dean of New York University's Stern School of Business." http://www.cbsnews.com/stories/2008/07/04/business/main4233751.shtml

And indeed that is exactly what transpired:

"The leaders of the Group of Eight nations... agreed that the long-term outlook for the global economy is positive."


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